From "Marcus by Goldman" to "Hazel by Walmart"

Plus: Revolut Wants 1m US Users, Citi Exits 13 Markets, Goldman Earnings Blowout

Hey all, Jason here.

It seems that everything old becomes new again — while Citibank is looking to improve profitability by shrinking itself and exiting some markets, Revolut is applying for a US bank license and plotting to enter China. More on both below.

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From “Marcus by Goldman” to “Hazel by Walmart”?

Based on a recent trademark filing, looks like that is the case for the two Goldman partners, Omer Ismail and Dave Stark, who, in late February, revealed their surprise departures from Goldman’s nascent retail bank for the yet to be defined “fintech” venture from Walmart and Ribbit Capital.

The trademark filing describes a broad swath of financial services offerings, including processing payments, electronic funds transfers, issuing credit cards, loans, purchase protection services, financial advisory services, and more. So, while this confirms Walmart is building a consumer offering, exactly what that offering is remains vague.

In his Forbes column last week, industry analyst Ron Shevlin argues that the strategy should be to build a “Superapp”, not to build the “bank of Walmart,” rightly noting that Walmart already offers many banking-like services through numerous partnerships, including those commonly used by the “un-” and “under-banked” — check cashing, money orders, general purpose reloadable debit cards (Walmart MoneyCard via Greendot), as well as offering POS loans via Affirm and a co-brand credit card with Capital One.

Historically, Walmart’s financial services offerings themselves haven’t driven much revenue (less than 1%), but rather served to enable customers’ spending.

How these existing products/services will be integrated into “Hazel” (if at all) remains unknown. Walmart already offers more functionality than most “challenger banks,” and has 5,000+ physical US locations to boot.

“Hazel” represents a chance to tie these offerings together in a more coherent and convenient package; though, that likely won’t be enough to compete with banking services like Chime and Cash App, which have already made strong inroads into the low/moderate income segments Walmart is likely targeting.

To develop a uniquely positioned and competitive offering, “Hazel” will need to go beyond mere banking functionality, which is ultimately a commodity product, to leverage its unique assets in e-commerce, physical commerce, logistics, health care, and more to give consumers a reason to care.

Ismail and Stark lack a background in physical retail or e-commerce, and experience from building Marcus (online-only and serving higher income/super-prime consumers) may not translate well to Walmart’s customer base.

One challenge may be attracting the tech talent it needs to execute on whatever the product strategy is. Walmart isn’t exactly known as the top destination for tech talent, and the reputation Ismail and Stark bring with them from Goldman Sachs likely won’t make attracting tech talent any easier.

While having Ribbit as a minority partner may provide a network to fill out the executive team, it’s not clear to me it makes much of a difference for hiring the rank and file needed to actually build an innovative product.

Revolut Wants 1m US Users, Eyes $10B Valuation

US challenger banks beware; London-based Revolut is planning a full-scale invasion.

In a recent interview with American Banker, Revolut US CEO Ron Oliveira revealed some interesting details.

Revolut, which recently began the process of obtaining a California state banking license and FDIC insurance, intends to offer a loan product later this year, via a partnership with Cross River Bank, and is planning a big marketing push starting in Q2 with TV adverts, influencer campaigns, and more.

But Revolut’s US team has its work cut out for it; it’s entering a crowded field and its current product offers little differentiation. When asked how Revolut will stand out in the US market, Oliveira responded (emphasis added):

“We're building out a full suite of products: DDA accounts, savings accounts, crypto, commodities [and] soon credit, business accounts. So you don't have to go anywhere else. That's how we differentiate ourselves. And we are truly a global bank. We're the only one that can do cross-border P-to-P really well.”

One point of difference is unlikely to help it win customers — monthly fees.

While it does have a free “Standard” product, more feature-rich tiers carry a hefty $10 or $17/month fee — something American consumers are not accustomed to paying. One of the key benefits of many neobanks, including market leader Chime, is their “no fees” positioning, potentially putting Revolut at a disadvantage.

Oliveira argued Revolut is trying to win customers from “legacy banks,” not other challengers. Even if that is the case, Revolut is still competing with other neos to win those customers defecting from a legacy bank or opening a secondary account.

Revolut also made news this week with coverage of its risky plans to expand into China and with a rumored $10 billion valuation target for a financing round expected to take place later this year. That would nearly double the $5.5 billion valuation from the company’s early 2020 equity raise.

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Goldman Crushes Q1 Earnings

Goldman’s quarterly earnings came out last week, and they were a doozy, with the firm absolutely crushing the quarter.

Revenue was up +102% vs. 1Q2020 and pre-tax earnings were up a monster +518%.

The investment banking, asset management, and global markets divisions powered the outsized gains:

The Consumer and Wealth Management unit, which includes “Marcus” (Consumer Banking), saw a more modest +16% growth in revenue vs. 1Q2020:

The consumer banking loan book (Marcus installment loans plus Apple Card credit card balances) was flat to the prior year, though this doesn’t include the GM credit card portfolio Goldman will inherit later in 2021:

Citibank Calls it Quits in 13 International Markets

While Revolut is plotting world domination (see above), Citi is retrenching.

The global consumer and investment bank is headed for the exits in Australia, Bahrain, China, India, Indonesia, South Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam.

Recently appointed CEO Jane Fraser said Citi “does not have the scale” to compete effectively in these markets. Citi intends to focus on its wealth management business in these geographies, according to Fraser:

“As a result of the ongoing refresh of our strategy, we have decided that we are going to double down on wealth. We will operate our consumer banking franchise in Asia and EMEA solely from four wealth centres, Singapore, Hong Kong, UAE and London.”

It may have competition, as HSBC, JPMorgan Chase, and Goldman Sachs all are planning to expand their presence in China.

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